July 25, 2013

There continues to be more blather about the need for "tax reform, and buddies GOP Dave Camp and skin-deep Dem Max Baucus seem to be intent on accomplishing something "big". And that's what's worrying me.

The Republicans have been arguing that we need tax reform to "simplify" the Code, but that's close to ludicrous. Most of the complicating portions of the Code exist for two reasons: (1) to provide some anti-abuse provisions to counter the tax avoidance techniques of wealthy, sophisticated taxpayers (including multinational corporations) and (2) to provide special tax subsidies through tax expenditures, again mostly for the wealthy (think capital gains preference) and industries with clout (consider the various subsidies for the natural resources extractive industries), accompanied by a few good ones that benefit the poor and marginalized individuals (such as the Earned Income Tax Credit). We shouldn't get rid of the anti-abuse provisions or of those tax expenditures that support lower-income families or favor emerging industries like wind power. That leaves getting rid of the subsidies for Big Oil, Big Pharm, etc as the only simplifying moves that make much sense. Something tells me that's not what will come of the Camp-Baucus rewrite.

The GOP also claim that "tax reform" (by which they invariably mean diminishing tax revenues though cutting tax rates for the wealthiest and corporations) will result in "supporting competition", economic growth and job creation. These claims aren't supported by empirical evidence or, in the case of "supporting competition" aren't necessarily anything that tax writers ought to care about. Yet the mantra of lowering corporate tax rates seems to be what is driving this effort--when corporations already pay an pittance of the tax revenues they originally paid, shifting more of the burden to the middle class.

Why do the Democrats support the idea that we need a major rewrite of the tax code? Regrettably, for much of the same reasons. They've been lobbied by the multinationals that want even lower taxes than they currently pay--those guys ALWAYS want lower taxes, no matter how much their share of tax revenues as a percentage of GDP has shrunk. And the Dems have long bought into the Wall Street mythology that the market's high marks mean good times for all. They are heavily influenced by Wall Street banksters who want low taxes and more speculative profits. ( Obama is even considering that misogynist, mostly wrong economist Larry Summers to head the Fed, a move that should cause deep nausea among any thinking woman and anyone who understands the Fed's role in preventing another Great Recession catastrophe for ordinary Americans. See Mark Thoma's, Larry Summers to head the Fed, WTF post.) The Democrats, that is, are generally disregarding the reality of the role of corporatism, and corporate power, in America today and the way that results in declininng wages for ordinary workers and declining quality of life. See Profits, Norms, and Power, July 20, 2013.

We should not be thinking about "major rewrites of the Code". We should be thinking relatively small. Fix the obviously bad provisions. My list would include considering the following:

Get rid of captive reinsurance companies and other transfer pricing silliness that allows MNEs to avoid US taxation, such as with legislation that refuses to recognize a sale of intellectual property to an offshore affiliate.

Eliminate deferral for offshore earnings altogether, not just for Subpart F earnings.

Install a financial transactions tax--it could raise billions while protecting the financial system and acting as a brake on speculative trading.

Eliminate the preferential rate for capital gains. At the least, eliminate the treatment of "carried interest" compensation income to fund managers as partnership flow-through income. Increase the estate tax, and making it a progressive rate that taxes gigantic estates at higher rates than small estates.

Eliminate the mortgage interest deduction for second homes.

Get rid of the like-kind exchange nonrecognition under section 1031.

Make the reorganization provisions more restrictive, and eliminate any possibility of loss recognition on reorg stock exchanges.

Make any compensation over $1 million nondeductible, no matter how determined.

These are just a few of the reasonable reforms that Congress could engage in now. But lowering rates--not something we should even be considering. The United States is one of the lowest taxed, overall, of advanced countries. Because we tax ourselves too little, we are not spending what we should be on public transportation, public education, and public infrastructure, and we are allowing too many important public services to be highjacked for private profit--from building decent housing for military on military bases to letting middlemen profits eat away at decent health care, compared to the single payer systems that every other modern advanced civilization enjoys. We need to raise taxes, and we need to do so in a way that will redistribute economic resources to support public infrastructure needs and move away from oligarchic concentration.

The Baucus-Camp "blank slate" approach--now with this promise of 50 years of guaranteed secrecy for whatever particular senators support or don't support--is extraordinarily worrisome? Secrecy to lawmakers is travesty in a country that claims to be a democracy. Legislation cannot be conducted behind closed doors where Senators are protected from exposure of their views.

Yet secrecy regarding senators views on tax reform is just what Baucus is promising. See Offering 50 Years of Secrecy, The Hill (July 24, 2013). [Hat tip Francine Lipman]

“The letter was done at the request of offices to provide some assurance that the committee would not make their submissions public,” the aide said. “Senators Baucus and Hatch are going out of their way to assure their colleagues they will keep the submissions in confidence.”

Keeping the submissions confidential for a half century, the aide added, was “standard operating procedure for sensitive materials including investigation materials.”

The lengths Baucus and Hatch have gone to reassure their colleagues underscores the importance the tax-writers are placing on the blank slate, and shows they are working hard to ensure that all 100 senators engage in the process.

So the rationalization is that this will protect the Senators from exposure to lobbyists. But if Senators don't have the guts to stand tall for what they believe in, what good are they? Are they really hiding from lobbyists or are they hiding from their ordinary-folk constituents? Lobbyists, after all, have many different avenues for influencing Senators--including the proximity to big money. Lobbyists will pursue legislators whether or not these written views are kept secret.

What about constituents? Constituents often don't know what their Senators are really doing unless it's covered in the news. Secrecy seems to have more to do with permitting Senators to pony up their favorite Big Money fundraiser's idea to be preserved, without constituents getting a whiff of the cozy relationship, than any other thing.

This kind of secrecy has nothing to do with "investigations" or "sensitive materials." It's got to do with "protecting" congressional representatives from having the public know what they really think about critical tax issues (including ones that benefit themselves and their biggest donors).

A REIT is a "real estate investment trust", a special-status entity created by Congress in sections 856 -859 of the Internal Revenue Code to provide a way for ordinary retail investors to share in a big investment in real estate that would be impossible for them to do individually. REITS avoid the corporate tax so long as they distribute most of their income as dividends to shareholders.

The Journal story notes that private prison operator Corrections Corp of America has already completed conversion to REIT status. Now a flock of corporations operating various businesses that one wouldn't ordinarily think were intended to be covered by the REIT exception to corporate taxation are applying for REIT status--including Iron Mountain Inc. (document storage operator), Lamar Advertising Co. (outdoor billboards), Equinix Inc. (data-center operator), and Penn National Gaming Inc. (casino operator). CBS submitted a letter ruling request for its outdoor advertising division's bid for REIT status and an IPO, a move that would save it $145 million in 2014 taxes (and more in later years), according to Davenport Research, as reported in the Journal.

In addition to the distribution requirement, REITs avoid corporate taxation only if they satisfy a complex set of eligibility requirements, including the following gross income and asset requirements.

The first gross income requirement mandates that at least 95% of a REIT's gross income must come from dividends; interest; real property rents; gains from property sales; income or gain from foreclosure property; abatements and refunds of real property taxes; amounts received as consideration for entering into agreements to make loans secured by mortgages on real property or to purchase or lease real property;gain from disposition of a real estate asset (other than prohibited transactions).

The second gross income requirement mandates that at least 75% of a REIT's gross income be derived from rents from real property; mortgage interest; real property dispositions; dividends or gain from disposition of shares of other REITs; abatement and refund of taxes on real property; income and gain from foreclosure property; consideration for entering into agreements to make mortgage loans or purchase or lease real estate; certain gain from dispositions of real estate; and "qualified temporary investment income". (The latter term is used for other types of investments that are used as temporary parking places for money.)

The first asset test requires that at least 75% of the total assets of a REIT be represented by real estate, cash and cash items (including receivables) and government securities.

The second asset test requires that (i) no more than 25% of the assets represent other securities; (ii) no more than 25% of the total assets be represented by securities of taxable REIT subsidiaries; and (iii) except for those taxable REIT subsidiary securities (I) no more than 5% represent securities of any one issuer; (II) the assets do not include more than 10% of the voting power of any one issuer and (III) the assets do not include more than 10% of the value of any one issuer.

A special rule permits "timber REITs" for logging businesses where more than 50% of the assets are used in a timbering business. And there are many more details to the rules than briefly outlined here.

Already, one can see two things about the REIT rules:

(1) that this is a very complex set of rules for which the discernible intent of Congress was to cover entities that made most of their money from being landlords--holding and leasing real estate;

(2) that the real estate (and logging) businesses undoubtedly lobbied hard to get this kind of break for their property businesses--a break that isn't ordinarily available for corporations that run grocery stores or distribution businesses or manufacturing businesses.

Aside: Real estate developers/owners/leasers are--like Big Oil and other natural resource extractive industries--businesses that exploit natural assets. For reasons likely dating back to the very different circumstances at our founding when people tended to think of America as a vast frontier with almost unlimited resources which required incentives to get people to development them (and of course at the same time overlooking the Native Americans who were already there and using those resources quite differently), Congress has historically lavished largesse in the form of tax expenditure subsidies on businesses that exploit land and minerals and other natural assets.

So why would a prison operator like Corrections Corp of America or a casino operator like Penn National Gaming Inc. that have active business income from operating prisons and casinos be eligible for the REIT break if REIT status is supposed to be for landlords that get rent income? It all depends on whether the business can successfully define its income as "lease" income from real estate (with incidental service income) rather than business income from providing services or running businesses(that take place on physical properties owned or leased by the companies). The IRS has actually been rather flexible in its application of the REIT rules to date, considering cell phone towers "real property" for this purpose, etc. As the journal notes, "some analysts argue that some companies are stretching the definition of landlord." But "stretching definitions" is the key to the tax minimization game, and tax lawyers, accounting firms, and others will keep doing it unless Congress or the IRS narrows the definition (or eliminates the issue entirely).

It seems quite appropriate that the IRS has launched a review "to define what type of companies can qualify as real-estate firms" for this purpose. Even more appropriate is the House Ways and Means Committee's review of the wisdom of providing this preferential tax expenditure for any industry, even if they really are landlords. The SEC has already noted that companies that hold lots of interests in real estate mortgage investment conduits (REMICs) might better be treated as mutual funds rather than REITs, for the safety of the financial system. Id. Rethinking REITs could lead to better securities regulation policy and better tax policy. Elimination of this tax subsidy --which amounts to tax favoritism for these real estate companies, casino and prison operators, and outdoor space advertising businesses--would be the fair thing to do.

June 07, 2013

In response to concern about taxpayer rights and potentially abusive tax collection activities, Congress passed two "taxpayer bill of rights" laws, in 1988 and again in 1996. Together, these laws protect taxpayers with further notice and information, shift the burden of proof to the government in many cases, and create an office of taxpayer advocate that reports directly to Congress, among many other provisions. The 1988 law (consolidating five different proposed bills into an "omnibus" bill under HR 4333) included provisions that sharply restricted IRS' employees' ability to ferret out tax evasion for fear of potentially violating the law. See summary of HR 2190, "the IRS Administration Reform and Taxpayer Protection Act of 1987", incorporated in the 1988 legislation passed as HR 4333. The 1996 law, HR 2337/ Public Law 104-506, beefed up the Taxpayer Advocate office, modified various penalty and collection provisions, and required an annual report to Congress on IRS employee misconduct. While these laws provided important new protections for taxpayers and noteworthy additions to the law governing collection authority, some were overgenerous to taxpayers and at the least made enforcing the tax laws more difficult for IRS employees.

It was only a short while after the 1996 law was enacted when the Senate Finance Committee held an elaborate series of hearings looking into alleged "abuses" of "innocent" taxpayers by the agency in collecting taxes and investigating potential criminal evasion of taxes: hearings on IRS practice and procedures, Sept. 23-25, 1997; hearings on IRS restructuring, Jan. 28-29, Feb. 5, 11, and 25, 1998; and hearings on IRS oversight, May 28-30 and June 1, 1998. Let it be clear: these hearings targeted the IRS with an apparent objective of changing the agency's focus from enforcement and collection of taxes to "nice-guy" relations with taxpayers. They included "sob stories" about harassment by the IRS from a priest, a divorced mother, a restauranteur and others, and alleged abuses in the collection and investigatory processes within the agency.

Much of the inflammatory testimony in those late 90s hearings was just that--stories, hand-picked to highlight purported problems, with the result that they inflamed the citizenry against the agency. The selected testimony was anything but balanced, in that it ignored myriad examples of just the opposite and included made-up tales of abuse. Danshera Cords, in an article discussing the 1998 Act, describes the restaurant owner's testimony and its lack of truthfulness as follows:

John Colaprete, owner of the Jewish Mother restaurants, "told the Finance Committee that IRS agents and other law enforcement personnel forced children to the floor at gunpoint, leered at scantily clad teenage girls, and generally violated his Fourth Amendment rights against illegal search and seizure, all on the word of his felonious bookkeeper." Ryan J. Donmoyer, Judge May Dismiss Jewish Mother Lawsuit, 83 TAX NOTES 1696, 1696 (1999). Mr. Colaprete testified before the Finance Committee that, while attending his son’s first Holy Communion, "[a]rmed agents, accompanied by drug-sniffing dogs, stormed my restaurants during breakfast, ordered patrons out of the restaurant, and began interrogating my employees." IRS Oversight: Hearings Before the Senate Comm. on Finance, 105th Cong. 75–79 (1998); ROTH & NIXON, supra note 5, at 189.

That sounds atrocious, until you find out that Colaprete later recanted the whole thing, when it was found that he was actually out of the country at the time it was claimed to have happened. Id.

There were two later reviews of the testimony--the Webster Commission and a GAO study (both cited in Cords' article). The Webster Commission found isolated abuses but no pattern of misconduct by the criminal investigation division. Criminal Investigation Div. Review Task Force, IRS, Review of the IRS's Criminal Investigation Division (1999). The GAO study found no evidence supporting the allegations that tax assessments were improperly handled or criminal investigations inappropriately undertaken. GAO, Tax Administration: Investigation of Allegations of Taxpayer Abuse and Employee Misconduct Raised at Senate Finance Committee's IRS Oversight Hearings (reprinted in 2000 Tax Notes Today 80-13 (Apr. 25, 2000)). David Cay Johnston, in his highly regarded book on the tax shelter business, describes those hearings as "going after the IRS". Perfectly Legal (2003). Bryan T. Camp describes Congress as seeing tax administration as an "inquisitorial" process. Bryan T. Camp, Tax Administration as Inquisitorial Process and the Partial Paradigm Shift in the IRS Restructuring and Reform Act of 1998, 56 Fla. L. Rev. 1 (2004) (describing the hearings at 78-86).

The Senate Finance hearings enabled the passage of additional legislation in 1998, the Internal Revenus Service Restructuring and Reform Act of 1998. The law reorganized the IRS, the main agency to enforce the law, into "units serving particular groups of taxpayers with similar needs"--i.e., changing its focus from law enforcement to "serving taxpayers". It "significantly limited" the agency's "historically broad powers". Id. (Cords, at 51). It created a collection due process hearing requirement before the IRS can proceed to collect on taxes due; a bureaucratic (red-tape) approval process for levies, liens and seizures; and severe limitations on examination and audit techniques and impositions of penalties. The agency suffered not only from increased disrespect (from media attention to the inflammatory hearings) that facilitated the right's mission to spread the Reagan mantra that "government is the problem," but also from underfunding, strict limitations on methodologies, and effective intimidation that made it harder to enforce the tax laws and collect unpaid taxes, thus encouraging tax evasion and even tax fraud. Stress, time and resource constraints, and understaffing, got worse, even while Congress dumped more and more administrative responsibilities on the agency.

The always innovative tax practitioners (attorneys and CPAs) noticed. Corporations and their high-wealth CEOs and majority shareholders were already engaging in more tax avoidance with the help of crafty lawyers finding loopholes in the interstices of the tax law and the more restrictive 1988 and 1996 laws that made it harder to enforce or collect. Many now took advantage of the newly flourishing tax shelter schemes from the late 1990s to mid 2000s. These were often promoted by big-money law partners at law firms like Donna Guerin at (now shut down) Jenkens & Gilchrist or Raymond Ruble at Brown & Wood (later Sidley Austin) and financed by investment banks like Deutsche Bank and others eager to profit from derivatives that made deals appear to move money around while essentially leaving it in place, with avid assistance (and sometimes design) by accounting firms like Arthur Anderson, KPMG, and BDO Seidman. The shelters usually had fancy acronyms like "COBRA" and "FLIPs." They frequently involved invented (phantom) losses or phony deductions. Many used purported federal income tax partnership structures to selectively pass gains to tax-exempt or tax-indifferent parties so (phantom) losses could be passed to parties that "needed" a tax loss to offset a large, expected, and real gain.

Hitting the news today is yet another story about a top CEO who engaged in those phantom-loss- generating partnership tax shelters. Zajac & Drucker, Ray Lane Rode Tech-Boom Tax Shelter Wave Broken by IRS, Bloomberg.com (June 7, 2013). Lane, former president of Oracle and current chair of Hewlett-Packard, used a shelter involving partnerships with long and short positions called "POPS"--put together by Sidley & Austin, Deutsche Bank, and BDO Seidman--to shield $250 million from taxation. Id. As Chris Rizek, a tax lawyer at DC's Caplin & Drysdale told Bloomberg, the IRS slacked off on enforcement in those years after the series of bills restricting tax administration because "they were intimidated." Id. "They could be cowed again," Rizek said, given the focus in Congress this month.

We seem to have a "boom or bust" cycle in terms of attitudes towards the IRS as the primary agency for enforcing our tax laws. And that's unfortunate, because a country that cannot force wealthy and corporate taxpayers to pay their share of the tax burden is a country that will fail.

This history should serve as an important warning to Congress, the mainstream media, and citizens as hearings exploiting anti-IRS sentiments spread cries of alleged abuses (seemingly with as little evidentiary support for widespread patterns of abuse as the 1998 hearings) that may again lead to overly restrictive legislation.

While any agency should avoid wasting money on unnecessary travel (and certainly luxury suites is a waste for any government employee), IRS employees should not be restricted from participating in important activities like attending and speaking at the ABA Tax Section's three annual meetings. And while it is important to ensure that there isn't a corrupt abuse of agency power, the hearings so far into the 501(c)(4) selection of various groups (conservative and liberal) for greater scrutiny bear too strong a resemblance to the hyped-up hearings by the Finance Committee in 1997-98, which inappropriately intimidated IRS employees from doing their jobs. Congress should not prevent the IRS from taking forceful actions to fight violations of the tax laws, such as appropriately screening applicants for 501(c)(3) and (c)(4) tax-exempt status.

August 28, 2012

Today (August 28), the Senate Finance committee provided an updated revenue estimate and text for the bill --the so-called "Family and Business Tax Cut Certainty Act of 2012"--that it had approved on August 2 to extend $205 billion-worth of "temporary" tax cuts through 2013. Most of these provisions are further extensions of the Bush cuts put in place going back to 2001, such as the annual "AMT patch" that comes about because the Bush tax cuts reduced the regular tax so much that the AMT does capture somewhat more taxpayers than it otherwise would have. This is expected to be brought to the Senate floor in September.

Here's what the Senate Finance extenders bill would do, with a cost of 143.221 billion for FY 2013.:

A. Main Individual Provisions

1. AMT exemption: increase the exemption amount for the AMT (see table below: the first amounts shown are post-2011 without the bill, the first increased amounts are for 2012 with the extender bill and the second increased amount is for 2013 with the extender bill) and allow the entire regular and AMT liability to be offset by nonrefundable personal credits during 2012 and 2013.

married filing jointly and surviving spouses: 45,000 increased to 78,750 and then to 79,850

other single individuals: 33,750 increased to 50,600 and then to 51,150

married filing separately: 22,500 increased to 39,375 and then to 39,925

Note that the AMT would only affect .9 million taxpayers in 2013 under this schema. The cost of this provision for increasing the exemption amount and allowing 100% of tax liability to be offset with credits is slightly more than 104 billion for FY 2013

2. Above the line deduction for classroom expenses of $250, at a cost of 273 million

3. Exclusion of income from discharge of indebtedness on principal residence (up to $2 million of discharged debt), at a cost of 199 million

4. parity for mass transit and parking benefits (extended retroactively to Jan 1, 2012), at a cost of 218 million

5. extend deductibility of mortgage insurance premiums as qualified residence interest (rationalized as a way to encourage home ownership), at a cost of 791 million

6. deduction for state and local sales taxes, at a cost of 1.64 billion

7. deduction for qualified tuition expenses, at a cost of 2.32 billion

8. tax free distributions from IRAs to public charities up to $100,00 per year per taxpayer, at a cost of 594 million

B. Main business provisions (nothing less than 5 million covered here)

1. Extend and modify R&D credit (applying it retroactively back to 12/31/11), at a cost of 6.2 billion

2. Indian employment tax credit, at a cost of 69 million

3. 50% tax credit for expenditures to maintain tracks, at a cost of 232 million

4. work opportunity tax credit, at a cost of 947 million

5. special, shorter depreciation recovery for restaurants, leaseholds, motorsports racing facilities and businesses on Indian reservations, at a cost of 335 million

6. enhanced charitable deduction for food inventory, at a cost of 218 million

7. Increase in section 179 expensing amounts, with thresholds of 500,000 and 2 million, at a cost of 8.088 billion

8. election to expense mine safety equipment, at a cost of 27 million

9. special expensing rules for film

9. special deduction for income attributable to Puerto Rican production activities, at a cost of 236 million

10. modification of payments under existing arrangements to controlling exempt organizations, at a cost of 35 million

11. treatment of RIC dividends, at a cost of 124 million

12. extension of treatment of RICs as qualified for FIRPTA purposes, at a cost of 48 million

2. Alternative fueld vehicle refueling property provision, at a cost of 34 million

3. Cellulosic biofuel credit, and special depreciation for celluslosic biofuel plant properties and other items at a cost of 44 million

4. extension of numerous credits for biodieself and renewable diesel, at a cost of 1.881 billion

5. extension of various credits for renewable energy, at a cost of 122 million

6. energy-efficient home construction credits, at a cost of 74 million

7. energy-efficient appliances credits, at a cost of 155 million

8. Cost of "special rule for sales or dispositions" to implement FERC or state electric restructuring, at a cost of 596 million

9. excise tax creidts and outlays for alternative fuels, at a cost of 305 million

The IRS made available an analysis of the difficulties in responding to potential changes to the AMT in time for filing of returns; that report is available at IRS Complexity Analysis (Aug. 13, 2012). Links to pdfs of the Senate Finance Committee Report on the Family and Business Tax Cut Certainty Act of 2012 (Aug. 28, 2012); Estimated Revenue Effects; and text of the proposed legislation are available at the Senate Finance Committee website.

Many of these provisions--including the chartiable contribution deductions for value rather than actual investment, the R&D credit extension and the active financing exception extension for businesses, as well as the accelerated depreciation and expensing provisions, don't appear to contribute to growth in the way that the proponents of the provisions claim. The Finance Committee hasn't made a strong case for continuing to include so many of these tax expenditure subsidies in the Internal Revenue Code.

Two of the business provisions are particularly unjustifiable. There is no indiciation that businesses will not do research without getting a credit (instead of a deduction) for research expenses. The Finance Committee justifies allowing this partly retroactive extension of the credit based on the benefit of research itself. But the Committee hasn't answered the right question--is it essential to research that businesses get a credit, rather than the deduction otherwise available, for research? The Committee just states that research is important and the Committee "believes it is appropirate to extend the present-law research credit" [that's the TEMPORARY credit that was created more than a decade ago!] and the Committee has enhanced the credit by permitting someone who is selling the business to use the credit for expenses incurred before the sale and by making it easier for a controlled group to manipulate their income by allocating research expenses among the controlled businesses.

The norm in Congress is that all of these temporary provisions will be renewed year after year, no matter what the cost, while a significant faction in the House and Senate continue to push the idea that it is necessary to cut spending on health care and other social safety net costs, cut taxes for the wealthiest amongst us, and increase spending on our already bloated military.

March 04, 2010

With Rangel's leave of absence from the chairmanship of the House's taxwriting Ways & Means committee, Pete Stark, ranking member after Rangel, became acting chair. Stark is known for both his expertise in and passion for health matters, as well as for what some would call refreshingly honest comments about the day-in day-out political shenanigans but others consider a brusque and confrontational approach. Stark also was involved in an ethics investigation involving tax matters--not the ideal spotlight for the head of Ways & Means. Although the investigation did not find that he had committed a violation, it certainly caused heads to turn. He had apparently claimed a homestead tax exemption for his temporary residence in the DC area, even though he maintains his permanent home and voting address in his home state of California.

Lesson in these tax problems that caused difficulties for both Rangel (who was admonished) and Stark (who got off the hook)?--the little you save in taxes isn't worth it. Be a good citizen, pay the taxes to state and federal government, and feel good that you have helped share the burden of funding the many services that we all demand and need, from garbage pickup to clean water, from sewers to police and fire protection, from the Center for Disease Control to FEMA. When the needs for which these various agencies arise, we holler and scream if they are not functioning properly. The rest of the time, it seems that many of us are eagerly doing everything legal (and sometimes quite a bit that's illegal) to get out of doing our share.

So after just a day of getting used to the idea of Stark as the putative new (acting) head of Ways & Means, looks like we have another adjustment to make. Apparently Stark is staying with his health subcommittee chairmanship, and instead Sander Levin, Michigan Democrat who is the next most senior member of the majority party, is taking over the acting helm. Levin is a good choice. Unlike so many from the bank-dominated northeast, he has understood the fundamental unfairness of the way carried interests in hedge funds and private equity partnerships have been considered to be taxed. (I say "considered" because there is still some question in my mind whether the code actually supports the traditional position on this issue, but that's a technical question not worth going into at this point.) Levin wants the carried interest taxed currenty as compensation--no more claiming capital gains, no more deferral. That's the right answer, since otherwise the particular industry in which one happens to earn one's pay is providing a huge tax break--the difference between the highest ordinary income rates and the very very low capital gains rates. Fixing the inequitable carried interest treatment is a good item to have high on the Ways & Means agenda.

March 03, 2010

Yesterday's post noted the pressure on Rangel to resign as chair of the powerful Ways & Means taxwriting committee. This morning, he announced that he is taking a leave of absence while the ethics investigation continues. A replacement has not yet been announced.

This is as it should be. One of the problems of the four decades of GOP anti-government noisemaking starting with Reagan's "the government is the problem" (even while the GOP continued to expand government, of course) is the growing lack of trust among the public. When there is lack of trust, it is easier for money and power to hold sway, rather than harder. The public needs to understand the importance of government, and their role in ensuring the accountability of those who are part of the government. The investigation of wrongdoing and the public denunciation of those who do wrong are a vital part of that. Though nobody is perfect, and public servants should be given some slack for human error just as all of us should be, there are some breaches of faith that are simply too substantial to set aside when committed by those in office. Rangel's breaches of ethics in his tax reporting and travel gift reporting are examples of them.

Now let's also get on to holding others accountable as well. ('m thinking of people like Jim Bunning, the GOP senator who singlehandedly decided to keep poor unemployed people from receiving extensions of unemployment compensation by holding Congress hostage for a provision he wanted. That foolish-individual ability to kill legislation is symptomatic of a greater problem in Congress--when those representing a very few Americans prevent Congress from passing legislation supported by the vast majority of American citizens and that, indeed, can make the difference between life or death for the naysayers' own constituents, as health care reform and unemployment compensation can do.